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also known as capitalism,

is an economic system in

which anyone is free to

start a business.

government plays a

somewhat limited role

as a producer, consumer,

and regulator.

The American Free Enterprise System

Characteristics of a

Free Enterprise System

Productive resources are privately owned.

Individual choice and voluntary exchange

drive the economy.

Business owners are free to decide how

to use their resources.

Workers are free to decide where to work.

Consumers are free to buy what they choose.

A free enterprise system has open opportunity

for all.

Requires legal equality of each person's economic rights.

The profit motive propels business owners to enter markets.

The free enterprise system rests on the free contract -- the voluntary exchange of money or labor.

When a business is successful, profit seekers will enter into those markets and allocate their productive resources.

Before long, the competition among the profit seekers drives down prices of goods and services as each seeks to attract customers.

Consumers "vote with their wallets," and companies that do not meet consumer needs will not survive.

Consumer's Role:

Producer's Role:

Consumers buy products and services they want and ignore those they don't want.

*Producers pay attention to trends in what consumers are buying and not buying.

They use these trends to figure out what to produce and how much of it.

Projects 2 & 3

Producers analyze what consumers are spending $$ on and how much they are spending.

They use their resources to produce the

most of what they think consumers will

pay significant amounts for, compared

with the cost of producing the product or service.

By doing this, they use their resources to earn the most profits.

Resource

Allocation

in a Free

Enterprise

System

As Consumer:

As Producer:

the government

provides services, natural resources, and takes in $$, tax revenues.

the government buys

some products and

services from the

product market and

some factors of

production, especially

labor.

Government's Role in a

Free Enterprise Economy

Definition:

What it is...

Finished

Free Enterprise

How it works...

Example: Page 73

Necessary rights & freedoms:

1. OPEN OPPORTUNITY: the ability of anyone to enter and compete in the market by his/her own free choice.

2. LEGAL EQUALITY: everyone having the same economic rights under the law.

3. FREE CONTRACT: everyone having the right to decide freely which legal agreements to enter into.

Example: Page74

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